March 13, 2009

Federal Appeals Court Tosses Egg Company’s $8.6m Award

A federal appeals court yesterday tossed an $8.6 million judgment against the government, ruling that emergency salmonella regulations that restricted an Indiana company’s egg sales did not constitute a taking under the Fifth Amendment.

During a two-year period in the 1990s, 43 percent of Rose Acre eggs were diverted from consumers to the “breaker market,” where the value of the eggs was about 10 percent lower. Breaker eggs undergo pasteurization and are used in the food processing industry. The U.S. Court of Federal Claims twice ruled in favor of Rose Acre, awarding the company about $2.4 million in attorney fees and expenses, and about $6.2 million in compensation for what the court concluded was a regulatory taking of eggs and a categorical taking of hens that were confiscated for internal-organ testing.

Salmonella regulations imposed by the Agriculture Department, the appeals court unanimously ruled, “were not functionally comparable to government appropriation or invasion of private property,” and the cost burden fell on Rose Acre to ensure its eggs did not harm the public. Chief Judge Paul Michel was joined by Judge Kimberly Moore and U.S. District Judge Marilyn Huff of the Southern District of California, who sat by designation.

“The law of regulatory takings does not generally compensate property owners when a regulation’s economic impact is slight and temporary but the potential for physical harm to the public is significant,” Michel wrote. “Here, infected eggs could have caused serious illness and possibly even death.”

Geoffrey Slaughter, an Indianapolis partner in Taft Stettinius & Hollister, argued for Rose Acre. “We’re studying the decision and trying to understand its implications. It’s too early to know whether our client will rest with this result or press forward with this litigation,” Slaughter says.

Mark Melnick, assistant director of the Justice Department’s Commercial Litigation Branch, argued for the government. Melnick was not immediately available for comment. A Justice Department spokesman says the department is pleased with the court ruling.